Fraud is intentional wrongdoing designed to evade tax. The existence of fraud is a question of fact to be resolved upon consideration of the facts and proven by independent evidence.

Section 6663(a) imposes a penalty equal to 75% of a taxpayer's underpayment of Federal income tax that is due to fraud. the section 6663 fraud penalty consists of two elements: (1) the existence of an underpayment , and (2) fraudulent intent with respect to some portion of the underpayment. Civil fraud may be determined if the IRS proves clearly and convincingly that a person1) underpaid his tax and 2) at least some part of each underpayment was due to fraud. The IRS has the burden of proof of both elements by clear and convincing evidence for each taxable year at issue; and that at least some portion of the underpayment for each year was due to fraud.

Because direct proof of a taxpayer's intent is rarely available, fraudulent intent may be established by circumstantial evidence. The IRS satisfies its burden of proof by showing that "the taxpayer intended to evade taxes known to be owing by conduct intended to conceal, mislead or otherwise prevent the collection of taxes. Taxpayer's entire course of conduct may be examined to establish the requisite intent, and an intent to mislead may be inferred from a pattern of conduct.

The courts focus on key badges of fraud in determining whether there was an "intent to evade" tax. The badges of fraud represents the circumstantial evidence that the IRS and the courts consider to determine if there is any civil fraud. The following facts will be considered:

Whether income is understated

Whether there are fictitious or improper deductions (e.g., overstatement of deductions, personal items deducted as business expenses)

It is helpful to understand the skill of a tax attorney in identifying and developing factual issues A tax attorney identifies, develops and creatively applies factual issues to defend and protect a taxpayer, to reverse an adverse IRS determination or to get a favorable tax settlement.

The IRS will not develop facts that reduce tax liability. The development of factual issues by an experienced tax attorney bears directly on the legal issues and can negate or mitigate tax liability.

This entry was posted on January 2, 2017 at 12:36 PM and has received 10864 views. There are currently 0 comments.
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